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Chubb Earnings: Another Strong Quarter as Chubb Benefits From a Hard Market

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Chubb CB continued its string of strong results with another good showing in the third quarter. We consider the annualized return on equity of 16% in the quarter to be a solid result for the narrow-moat insurer, and the level this quarter improved modestly sequentially. While this is partially the result of favorable market conditions, we think disciplined insurers like Chubb have more leverage to a hard market. We will maintain our $213 fair value estimate and see shares as roughly fairly valued at the moment.

Global P&C lines, excluding agriculture, saw net written premiums grow 12% year over year, with 10% growth in commercial lines and 18% growth in personal lines. An acquisition added 2 percentage points of growth. We believe the company’s growth is primarily coming from higher pricing.

Chubb continues to generate strong underwriting profitability. The reported combined ratio for Global P&C lines, excluding agriculture, improved to 87.6% from 93.6% last year. However, the improvement mainly came from lower catastrophe losses. The underlying combined ratio came in at 83.0%, compared with 83.2% last year. We’ve seen underlying underwriting margins for Chubb and peers start to flatten over the past few quarters, suggesting commercial lines have peaked. While we don’t expect any significant improvement going forward, underwriting profitability appears to be stabilizing at an attractive level, which should allow Chubb to continue to generate strong returns.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Brett Horn

Senior Equity Analyst
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Brett Horn, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers insurers and credit bureaus. He also oversees the equity research team’s stewardship rating methodology.

Before joining Morningstar in 2006, Horn worked in the banking industry for about a decade, most recently as a commercial loan officer for First Bank, where he was responsible for underwriting loans and managing relationships with middle market clients. Before that, Horn worked for Mizuho Corporate Bank, where he managed loan portfolios and client relationships, primarily with Fortune 500 companies.

Horn holds a bachelor’s degree in business administration, with a concentration in finance, from the University of Wisconsin and a master’s degree in business administration from the University of Illinois. He also holds the Chartered Financial Analyst® designation. He ranked first in the business and industrial services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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